The effect of cigarette taxes on cigarette consumption, 1955 through 1994.
K J Meier and
M J Licari
Department of Political Science, University of Wisconsin-Milwaukee 53201, USA.
OBJECTIVES: This study examines the effectiveness of state andfederal taxes in reducing the consumption of cigarettes, estimatesthe impact of government health warnings, and shows how warningsand taxes interact. METHODS: By means of a pooled time-seriesanalysis from 1955 through 1994 with the 50 states as unitsof analysis, the impact of excise taxes on cigarette consumptionfor several different models and econometric techniques is assessed.RESULTS: From 1955 through 1994, increases in state taxes wereeffective in reducing cigarette use. Federal tax increases,however, appear to have been more effective. This differenceis partly the result of the "bootlegging" of cigarettes acrossstate lines and the size of the increases in the federal tax.Cigarette consumption also declined when health warning labelswere added. CONCLUSIONS: Increases of taxes on cigarettes areassociated with declines in the consumption of tobacco. Becauseof inflation, increased health concerns, and the declining percentageof smokers, however, large reductions in consumption requirelarge tax increases.
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